managerial economics

PDF 29 pages 240.7 KB Free download

29 pages

FaylHub.uz

Download via Telegram

Size 240.7 KB

File type PDF

Pages 29

Updated Dec 2025

Page preview (5 pages)

Scroll down 👇

1 / 29

managerial economics chapter five decision making under risk and uncertainty by: teklebirhan a. (asst. prof) e-mail: tbalemnew@gmail.com 1 aau , 2024 2 describe decision making in different situations know the application risk and probability distribution in investment evaluation evaluate investment in risk environment understand how to make investment decisions in uncertainty objectives 3 most economic decisions are made with something less than perfect information. for example: a manager cannot know, whether the introduction of a new product will be profitable because of the uncertainty of macroeconomic conditions, consumer tastes, and reactions by competitors, resource availability, input prices, labor unrest, political instability, and so forth. the ability to make good decisions is the key to successful managerial performance. 5.1. the nature of decision making 4 all decision-making shares several common elements. once the source/s of the problem are identified, the manager can move to an examination of potential solutions. the choice …

2 / 29

n the expected outcome. risk implies a degree of uncertainty and an inability to fully control the outcomes or consequences of such an action. risk or the elimination of risk is an effort that managers employ. when a range of potential outcomes is associated with a decision and the decision maker is able to assign probabilities to each of these possible outcomes, risk is said to exist. 5.2. meaning and measurement of risk 8 a decision is said to be risk free if the cash flow outcomes are known with certainty. a good example of a risk-free investment is u.s. treasury securities. in contrast, us airways bonds constitute a risky investment in summary, risk refers to the potential variability of outcomes from a decision.  the more variable these outcomes are, the greater the risk.  cont….. 9 as there are different kinds of decisions, there are also different conditions …

3 / 29

er complete certainty conditions, all relevant information about the decision variables and outcomes is known or assumed to be known. cont….. 13 2) decision making under conditions of uncertainty uncertainty is said to exist when the decision maker does not know the probabilities associated with the possible outcomes, though s/he has been able to identify the possible outcomes and their related pay-offs. since the probabilities are not known, the decision maker cannot use the criterion of maximizing the pay off. this is the most difficult situation for managers. cont….. 14 the manager may be dealing with too many variables, or perhaps there are too many unknown facts. the management is unable to accurately predict the probable results of choosing anyone of the alternatives. reliance on experience, judgment & other people’s experience can assist the manager in assessing the value of the alternatives. no information is available on how likely the …

4 / 29

e with the “best worst.”  this approach seeks to minimize the difference between the pay- off that is realized and the best pay-off for each state of nature. cont….. 18 illustration 1: referring to the pay-off table, determine which alternative would be chosen under each of these strategies: (a) maximin, (b) maximax, and (c) laplace cont….. alternatives possible future demand low medium high small facility 10 10 10 medium facility 7 12 12 large facility (4) 2 16 19 a) using maximin, the worst pay-offs for the alternatives are:  small facility: $10 million  medium facility: $7 million  large facility: $–4 million hence, since $10 million is the best worst, choose to build the small facility using the maximum strategy. cont….. 20 b) using maximax, the best pay-offs are:  small facility: $10 million  medium facility: $12 million  large facility: $16 million  the best …

5 / 29

….. 24 3) decision-making under conditions of risk in this situation, the manager knows  what the problem is;  what the alternative are; but doesn’t know how each alternative will work out even though s/he knows the odds (probabilities) of possible outcomes. the probability of occurrence for each state of nature is known. note that because the states are mutually exclusive and collectively exhaustive, these probabilities must add to 1.00. cont….. 25 a widely used approach under such circumstances is the expected monetary value criterion. the expected value is computed for each alternative, and the one with the highest expected value is selected. the expected value is the sum of the pay-offs for an alternative where each pay-off is weighted by the probability for the relevant state of nature. cont….. 26 example: determine the expected pay-off of each alternative, and choose the alternative that has the best-expected pay-off. using …

Want to read more?

Download all 29 pages for free via Telegram.

Download full file

About "managerial economics"

managerial economics chapter five decision making under risk and uncertainty by: teklebirhan a. (asst. prof) e-mail: tbalemnew@gmail.com 1 aau , 2024 2 describe decision making in different situations know the application risk and probability distribution in investment evaluation evaluate investment in risk environment understand how to make investment decisions in uncertainty objectives 3 most economic decisions are made with something less than perfect information. for example: a manager cannot know, whether the introduction of a new product will be profitable because of the uncertainty of macroeconomic conditions, consumer tastes, and reactions by competitors, resource availability, input prices, labor unrest, political instability, and so forth. the ability to make good decision...

This file contains 29 pages in PDF format (240.7 KB). To download "managerial economics", click the Telegram button on the left.

Tags: managerial economics PDF 29 pages Free download Telegram